Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

Chaos in North Africa


North Africa is in chaos as internal unrest spreads through the region. Egypt saw the kind of mass protests that started the revolution against Hosni Mubarak, Mali is playing host to a battle between the French and the Jihadists that had taken over north Mali, Libya was recently warned off visiting by the British government while the whole world watched on as an Algerian gas plant was taking hostage by Islamist extremists. Even Tunisia, seen as one of the more stable nations was rocked this week by the assignation of an opposition leader.

But on the whole there are positive signs from all these events. The Egyptian unrest was a predictable reaction to President Morsi’s attempt to fast track an Islamist flavoured constitution without any input from the other factions of Egypt. After being elected democratically, he has stretched the public backing he was given, by granting himself dictator like powers and taking advantage of the main lower house of parliament being dismissed on a technicality. The responsibility of selecting an assembly to write the constitution instead fell to the upper house (the Shura council), which was elected on a tiny turnout (10%), stripped of its non-Islamist members in protest and awarded immunity from the courts by Mr Morsi. The constitution was boycotted by the public when it came to voting, with a turnout of just a third of the population. Mr Morsi is now facing the consequences of his choices and clearly no long has the backing up the public. He has called for dialogue between the government and the protesters and could yet back down on some of the extreme parts of the constitution. The public meanwhile are not hungry for another rebellion; they want a voice and some fair leadership, not more death. If both sides can start negotiations, then this could be a turning point in Egypt.

Mr Morsi is losing the public support that won him the election. 

The same can be said for the rest of North Africa. The French are impressively pushing back the Jihadists that took over North Mali, Algeria moved swiftly to deal with the terrorist occupation of their gas plant, in the process sending out a signal to the rest of the world while Libya is finally embracing democracy after decades of dictatorship (if not rather clumsily).

The main problem that is emerging from this volatility is that the economies of these North African countries are grounding to a halt. This could leave many long term problems for these nations.

Growth has stagnated in the region for the last two years, which for these developing countries is extremely harmful, as growth of near 6% is ideally needed to provide jobs and drag millions out of the poverty that plagues Africa. In Mali, a poor harvest in 2011 was compounded by the coup in March last year (where the military has given back power in nothing but name). This has impacted on Mali’s agriculture where around 70%s of the population works (with the north effectively separated from the southern capital). This is a major reason for the rise in unemployment to 17% as well as the contraction in the service sector of nearly 9%. The fighting has seen many foreigners flee the country, taking their money with them, as FDI has been chased away. Aid has also been impacted, which the country heavily relies on, as Obama and Europe cut off donations to the country after news of the coup in March. This all lead to the economy contracting last year by 1.5% (a devastating blow for a country that already ranks among the poorest in the world). Since the start of 2013, France has entered the country and helped establish the authority of the government once again, while the IMF has announced a loan of $18.4 million to help the economy recover. But the political environment is still heavily unstable, and while the French can help battle off the bad guys, they can’t govern the country for Mali, which has long been a problem. The country needs an election and has to break the power triangle between the president, prime minister and the army that has lead to many squabbles. In December the prime minister was arrested and forced to resign live on TV by the army, which managed to reject the calls of another coup by keeping the president in power. Growth is expected to return this year if Mali can inject some stability into their economy, but no-one would be willing to make that bet. This all prolongs the development of the country to the point where it no longer needs to rely on aid and be able to develop its own private sector. The Jihadists might be leaving, but the destruction and instability they leave behind will set Mali back years.

President Hollande can’t fix Mali’s political problems. 

The Libyan economy is still trying to recover from the fall of the Gaddafi dictatorship in 2011, but has the helping factor of being one of the most oil rich states in Africa. Since the revolution, many large oil companies have been able to return to the country and oil production has impressively returned back to original levels, lifting Libya to third in the oil production league table in Africa. The small population and high oil earnings should help Libya recover much faster that its fellow North African economies. In fact, in 2012 the IMF estimated that Libya grew by 121%, though this was after a contraction of around 60% in 2011. This growth is majorly inflated by the mass oil production, with oil production accounting for 70% of GDP and 90% of exports. A true recovery is still years away and the current government spending on rebuilding infrastructure is too high to be sustained in the long term. More FDI is needed to help lift the service sector and the private sector off its knees, but this is unlikely when the country is still beset by social unrest. The murder of the American ambassador last year and the recent travelling alerts are big warning signs to businesses investing in the country, as internal divisions remain high.  Until this can be resolved, the country will remain reliant on a volatile oil market.

Algeria remains the only country not to experience the same sort of social problems as its neighbours, though this is mainly down to the government raising wages and deferring taxes last year. They could only afford this because of the rebounding oil market, which accounts for 97% of its exports along with gas. The country is just as reliant on oil as Libya and faces the same problems of become dependent on a volatile market without any other diversification in their economy. The increase in wages and food prices also saw inflation rise above 8% last year, weakening the growth of 2.5% for 2012 that was already downgraded from the 4.7% growth forecasted by the government. The hostage situation was dealt with swiftly by the government and perhaps reduced the chance of Islamic extremists moving into Algeria and causing the havoc that has unravelled in Mali. But a less publicised negative impact was that on the countries oil and gas sector, as the terrorists targeted a BP gas plant. If investors and energy companies become anxious that their plants are going to be targeted in the future, they might start pulling out of the country, as they did with Libya when a (albeit more dangerous) civil war broke out. The country is already ranked lower than Mali for business friendliness by the World Bank. This incident has pointed out not only the danger of growing terrorism in the North African region, but also the utter reliance of Algeria on its oil and gas sector.

Tunisia is being hit by angry protests against the Islamist government after the assignation of a secular opposition leader. Tensions have been rising for a while between the two sides, with skirmishes occurring across the country. The unrest reflects their economy that has struggled on since the toppling of its dictator at the start of 2011, registering decline of 1.8% in 2011 and 3.5% growth in 2012 that was overshadowed by increasing unemployment of nearly 20%. The lack of positive change since the revolution has helped increase tensions in the country, with the sacking of the internationally respected Mr Nabli as head of the central bank showing a lack of common sense according to critics of the government. The top aim now is for the country to create real jobs (not just artificial ones) by investing in areas that it could become market leaders in the region. Tunisia’s close integration with Europe has cost the country during the euro crisis, but with the tide perhaps turning in the continent, a chance for economic progression could arise. Tunisia surely needs some signs of economic progress if the governance is to hold off talk of upheaval.

Tunisia fared rather badly in the aftermath of the revolution; declining in GDP and suffering from higher unemployment than its neighbours. 

Finally there is Egypt, the biggest economy in North Africa. Said economy is now collapsing, with the Egyptian pound falling in value, imports at double the rate of exports and public debt equal to over 70% of GDP (too high for a developing economy). Negotiations with the IMF over a vital loan have stalled as well, as the government refuses to cut unhealthy subsidies for gas and food. In a similar situation to Tunisia, the public are impatient over an economic situation that has only gotten worse since the revolution in 2011. High growth in the years before have been replaced by stagnation and decline, unemployment has risen and the private sector is in tatters. Stability more than anything is required to help the economy; after the revolution year of 2011, 2012 was filled with divisions between the supporters of Mr Morsi and those wary of the Muslim Brotherhood working behind the scenes. Because of this, foreign investment has significantly dropped, falling by over three quarters in the last five years. Negotiations is needed between both sides, with neither covering themselves in glory; Mr Morsi remains too radical on the Islamic changes he wishes to implement, while his opponents are too ready to charge to the streets over the smallest issues. If Egypt can achieve some sort of consistency, then an economy full of potential can start to recover, if not then another revolution is never off the cards, worryingly.

This table shows the collapse of Egypt’s currency, as the country spends billions of foreign exchange reserves to try and keep it pegged to the US Dollar. 

North Africa was once one of the leading lights of the African economy, but has since been derailed by the Arab Spring. While the immediate danger of civil wars and revolutions are not as serious as believed, a collective effort must be made to reform the economies and encourage growth. For some there needs to be some diversification in the economy away from oil and gas, while for others some stability and political leadership remain the key principles needed for growth. Otherwise the dreams of the revolutions could become a nightmare.

 

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3 thoughts on “Chaos in North Africa

  1. Mr Prior
    I am writing an essay on Algeria and would like to cite your work academically. May I have your permission to do so???
    Kind Regards
    Chris

    • Hi chris,

      Yeah sure go ahead.Can I ask what your essay is in regards to?

      • Sir
        Yes its about energy security in North Africa and its relations to the geographical nature and the security posture, or there fore lack of. Apologies as I have just come back to referencing my work.
        Thank you so much.
        Kind Regards
        Chris

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